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Portfolio managers and trustees in Switzerland

Switzerland, renowned for its stable financial market and robust regulatory framework, has always been a magnet for financial institutions worldwide.

The Swiss Financial Market Supervisory Authority (FINMA) is central to this stability and integrity, which oversees and regulates various financial entities, including portfolio managers and trustees.
These professionals play a pivotal role in the financial ecosystem, managing assets on behalf of clients or holding assets in trust.

Given their significance, it's paramount to understand the regulatory landscape they operate within and the rigorous standards they must meet.

This article delves into the intricacies of these regulations, providing a comprehensive overview of the duties, responsibilities, and processes these entities are bound by in the Swiss financial arena.
Table of Contents:

1. Who are the portfolio managers and trustees
  • Portfolio managers: definition, activities, regulation
  • Trustees: definition, activities, regulation

2. FINMA – an independent supervisory authority
  • Responsibilities of FINMA in terms of supervision

3. Necessary qualifications for portfolio managers and trustees to obtain a FINMA license

4. Ongoing supervision by the SO (supervisory organization)
  • Key aspects to know about SOs in Switzerland

5. Licensing process for portfolio managers and trustees
  • The steps of the application process: How to apply

Conclusion
    A small disclaimer: this information is given for reference purposes and is not a consultation or guide to action. Reading it is not a substitute for the advice of a qualified lawyer. All information is current as of September 2023.

    Over the last 15 years, we have gained tremendous experience in serving our clients from almost every country in the world and interacting with public authorities.
    We have extensive experience in financial services licensing and would be pleased to assist you with your tasks. Our expertise will provide you with a clearer roadmap tailored to your specific situation.
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    Who are the portfolio managers and trustees

    In Switzerland, the terms "portfolio managers" and "trustees" refer to specific types of financial service providers, and their roles and responsibilities are defined within the country's regulatory framework, particularly under the Financial Institutions Act (FinIA), which came into force in January 2020.

    Portfolio Managers

    • Definition: Portfolio managers are individuals or legal entities that manage assets on behalf of clients based on a mandate. This means they make investment decisions and conduct transactions on behalf of their clients.

    • Activities: Their core activities include buying and selling securities, making investment decisions, and often offering investment advice. They might manage individual client portfolios or pooled funds.

    • Regulation: With the implementation of the FinIA, portfolio managers in Switzerland are now subject to prudential supervision. They are required to obtain a license from FINMA, and their operations are overseen by authorized Supervisory Organizations (SOs).

    Trustees

    • Definition: Trustees are individuals or entities that hold and manage assets on behalf of beneficiaries under a trust deed. Trusts are legal arrangements where assets are transferred from a settlor to a trustee for the benefit of beneficiaries or a specific purpose.

    • Activities: Trustees administer assets, ensure the trust's terms are adhered to, distribute assets to beneficiaries as stipulated in the trust deed, and make decisions to safeguard and grow the trust's assets.

    • Regulation: Like portfolio managers, trustees in Switzerland now require a license under the FinIA. They, too, are supervised by SOs, ensuring that they comply with Swiss regulations and are in the best interests of the beneficiaries or the purpose of the trust.

      FINMA – an independent supervisory authority in Switzerland

      The Swiss Financial Market Supervisory Authority, more commonly known by its German abbreviation FINMA, is Switzerland's principal financial regulatory body. Established to ensure the proper functioning, integrity, and transparency of Switzerland's financial markets, FINMA operates as an independent supervisory authority.

      Responsibilities of FINMA in terms of supervision

      Here are the specific responsibilities of FINMA concerning the supervision of portfolio managers and trustees based on the Financial Institutions Act and other pertinent regulations:
      • Licensing Requirement: Both portfolio managers and trustees are subject to a licensing requirement. FINMA is responsible for granting and withdrawing these licenses based on the entities meeting the regulatory requirements.
      • Supervisory Organizations (SOs): While FINMA remains the primary supervisory authority, much of the day-to-day supervisory tasks for portfolio managers and trustees are delegated to authorized Supervisory Organizations. FINMA is responsible for approving and overseeing these SOs.
      • Regulatory Standards: Portfolio managers and trustees must comply with various regulatory standards, including proper business conduct, adequate organizational structures, and suitable risk management. FINMA ensures these requirements are complied with directly or through the delegated SOs.
      • Professional Indemnity Insurance: Portfolio managers and trustees must have professional indemnity insurance or some other form of collateral to cover potential liability risks. FINMA monitors the adherence to this requirement.
      • Ongoing Supervision: Through the SOs, FINMA ensures ongoing supervision of portfolio managers and trustees. This includes regular audits and reporting to ensure they comply with the regulations and maintain the necessary level.
      • Enforcement: If a portfolio manager or trustee is found to violate the regulations, FINMA has the authority to take enforcement actions, ranging from warnings to the withdrawal of the license.
      • Transparency and Disclosure: Portfolio managers and trustees must ensure transparency in their operations and provide necessary disclosures to clients. FINMA ensures that these entities adhere to transparency and disclosure norms.
      • Protecting Investors' and Clients' Interests: A primary goal of FINMA's supervisory role is to protect the interests of investors and clients. By overseeing portfolio managers and trustees, FINMA ensures that client assets are diligently managed and in line with regulatory requirements.
      • Continuous Adaptation: The financial landscape is continuously evolving. FINMA, therefore, reviews and refines its regulatory approach to ensure that portfolio managers and trustees operate to reflect current best practices.
      In sum, while FINMA has a broader oversight role over the entire financial sector, its responsibilities towards portfolio managers and trustees focus on ensuring that they operate transparently, responsibly, and in the best interests of their clients while upholding the rules and regulations set out by Swiss law.
      Ongoing supervision by the SO (supervisory organization)
      Establishing SOs as intermediaries in the regulatory process was a notable feature of the new Swiss financial market architecture, which came into effect with FinIA and the Financial Services Act (FinSA) in January 2020.

      Here are some key aspects to know about SOs in Switzerland:

      • Authorization by FINMA: An organization must first be authorized by FINMA to function as an SO. FINMA ensures that these organizations meet strict criteria and can effectively supervise the financial entities under their purview.

        The five FINMA-licensed SOs are:

      • Independence and Neutrality: SOs must be independent. They shouldn't have any conflicts of interest with the entities they supervise. This ensures impartiality and fairness in their supervisory duties.
      • Regular Reporting to FINMA: While SOs supervise individual financial institutions, they are overseen by FINMA. They must submit regular reports to FINMA on their activities and any significant findings from their supervisory duties.
      • Adherence to Regulations: SOs ensure that portfolio managers, trustees, and other financial entities comply with the rules and regulations laid out in FinIA, FinSA, and other relevant laws.
      • Fees and Costs: Financial institutions being supervised by an SO typically bear the costs associated with this supervision. These costs might be in the form of membership fees or fees for specific services.

      The qualifications required for portfolio managers and trustees to obtain a FINMA license are based on ensuring they have the necessary professional expertise and can operate with the highest level of integrity. Under the FinIA, the following qualifications are particularly emphasized:

      1. Professional Experience:

      • Portfolio managers and individuals responsible for portfolio management within a firm should have several years of relevant professional experience.

      • Similarly, trustees should have adequate professional experience in trust administration or related fields.


      2. Training and Education:

      • While specific academic degrees might not always be mandatory, having formal education in finance, law, business, or related fields is often viewed as beneficial and might be required in some instances.

      • Recognized professional qualifications, certifications, or affiliations with professional portfolio management or trust administration bodies are valuable. Examples might include the CFA (Chartered Financial Analyst) certification for portfolio managers or the STEP (Society of Trust and Estate Practitioners) qualification for trustees.


      3. Continuing Education:

      • Given the dynamic nature of financial markets and regulations, it's crucial for professionals to engage in regular and ongoing training. This ensures they stay updated with industry trends, best practices, and regulatory requirements.


      4. Good Reputation and Proper Business Conduct:

      • Individuals responsible for managing and administrating portfolio management or trust companies must have a good reputation. Their background should be free from legal or professional misconduct that could compromise their ability to perform their roles with integrity.


      5. Sufficient Guarantees:

      • This is more of a qualitative criterion. It means that those in charge of the entity's administration and management must have demonstrated a commitment to proper business conduct in their past roles.


      6. Knowledge of Regulatory Framework:

      • Professionals must deeply understand the Swiss regulatory environment, especially regulations pertinent to portfolio management or trust administration.


      7. Codes of Conduct:

      • Adhering to recognized codes of conduct is a requirement. Professionals must be aware of these codes and commit to upholding them.


      It's important to note that while these qualifications form a general framework, the specifics can vary based on the detailed nature of an entity's activities and the particular role an individual will play within the organization.

      Licensing process for portfolio managers and trustees

      Portfolio managers and trustees must obtain a license from FINMA to operate. The licensing process ensures these entities comply with the high requirements to work in the Swiss financial market.

      Before starting the licensing process, the entity should conduct a self-assessment. This helps determine if the entities meet the organization, capital, risk management requirements, etc.

      The entity must also prepare comprehensive documentation that showcases its compliance with the requirements set out by FINMA. This would typically include:
      • 1
        Business plan detailing the nature and scope of its activities.
      • 2
        Organizational structure and governance documents.
      • 3
        Details of shareholders and beneficial owners.
      • 4
        Proof of minimum capital and capital adequacy.
      • 5
        Risk management and compliance policies and procedures.
      • 6
        Description of the internal control system.
      • 7
        CVs and professional qualifications of key personnel.
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      HOW TO APPLY

      Once all the documentation is ready, the entity submits a formal application to FINMA.
      • 1
        Self-Registration on EHP
        • Before formally starting the application process, entities might need to self-register on the EHP platform.
        • This registration could involve providing preliminary details about the entity, its operations, and key personnel.
      • 2
        Preparing the Application
        • Based on the guidelines provided on the EHP platform or by FINMA, entities must gather all necessary documents and information for the application.
        • This can include a detailed business plan, governance structure, risk management policies, details of key personnel, and proof of capital adequacy, among other documents.
      • 3
        Sending Application to SO
        • Before sending the application to FINMA, the entity first submits it to its chosen Supervisory Organization (SO) for review.
        • This step ensures that the application meets the criteria set out by both the SO and FINMA.
      • 4
        Checking of the Authorization Application and Confirmation from the SO
        • The SO thoroughly reviews the submitted application, checking for completeness, accuracy, and compliance with regulatory requirements.
        • If the SO identifies any discrepancies or missing information, they will communicate this to the entity, and corrections or additional documentation may be required.
        • Once satisfied, the SO will confirm or endorse that the application meets the necessary criteria.
      • 5
        Sending the Application and SO Confirmation to FINMA
        • With the SO's confirmation, the entity can forward its application to FINMA.
        • FINMA will review the application and the SO's confirmation and, if necessary, might ask for further information or clarifications.
        • Once satisfied, FINMA will issue a decision regarding the entity's licensing.
      Throughout this process, entities must maintain open communication with both the SO and FINMA, ensuring that all requirements are met, and any issues are promptly addressed.
      All public data, including a copy of the incorporation documents, can be obtained from the commercial register of the canton, and then they can be apostilled at the cantonal authorities.

      You can find more information on the costs and timing of the service for obtaining extracts from the commercial register on the relevant page.

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